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DXC Technology Reports Third Quarter Fiscal Year 2022 Results

  • Revenues of $4.09 billion for Q3 FY22, down 4.6% as compared to prior year period, and down 1.4% on an organic basis

  • Diluted EPS was $0.38 and Non-GAAP diluted EPS was $0.92 in Q3 FY22

  • Bookings of $5.0 billion and book-to-bill ratio of 1.23x in Q3 FY22

  • Operating cash flow of $696 million, less capital expenditures of $146 million, results in $550 million of free cash flow

  • Repurchased 6.8 million shares for $213 million in Q3 FY22, bringing YTD repurchases to $363 million or 10.6 million shares

  • DXC intends to self-fund $1 billion of additional share repurchases over the next twelve months

ASHBURN, Va., February 02, 2022--(BUSINESS WIRE)--DXC Technology (NYSE: DXC) today reported results for the third quarter fiscal year 2022.

"Our third quarter results show the strong progress we are making with our transformation journey. Our focus on operational execution drove continued improvement in revenue, margins, and EPS, as well as an exceptionally strong bookings quarter of $5 billion (for a book-to-bill of 1.23x), and an outstanding cash flow result," said Mike Salvino, DXC President and Chief Executive Officer. "By operating a more disciplined and focused organization, we continue to strengthen both our position in the market and our balance sheet, resulting in improved margins and substantial free cash flow. Finally, I would like to thank my colleagues across the organization for continuing to deliver excellence for our customers in the midst of COVID-19 challenges."

Financial Highlights(1)

Q3 FY22

Q3 FY21

Revenue

$

4,089

$

4,288

YoY Revenue Growth

(4.6)%

(14.6)%

YoY Organic Revenue Growth (2)

(1.4)%

(9.7)%

Net Income

$

102

$

1,103

Net Income as a % of Sales

2.5%

25.7%

EBIT

$

189

$

2,032

EBIT Margin %

4.6%

47.4%

Adjusted EBIT(2)

$

355

$

300

Adjusted EBIT Margin %

8.7%

7.0%

Earnings Per Share (Diluted)

$

0.38

$

4.29

Non-GAAP EPS (Diluted) (2)

$

0.92

$

0.84

Book-to-Bill

1.23x

1.13x

(1) In millions, except per-share amounts

(2) Reconciliation of GAAP to Non-GAAP measures provided in Non-GAAP Results.

Financial Highlights - Third Quarter of Fiscal Year 2022

Revenue was $4.09 billion for the third quarter of fiscal year 2022, down 4.6% as compared to prior year period, and down 1.4% on an organic basis. Third quarter revenues came in at the bottom of the previous guidance range, as the strengthening of the U.S. dollar reduced third quarter fiscal year 2022 revenues by $26 million as compared to the currency rates used in our prior earnings guidance.

Net income was $102 million, or 2.5% of sales, for the third quarter of fiscal year 2022, compared to $1,103 million, or 25.7% of sales, in the prior year quarter. EBIT was $189 million or 4.6% of sales. Net income and EBIT in the quarter included the following items: amortization of intangible assets of $106 million, debt extinguishment costs of $2 million, restructuring costs of $36 million, mark-to-market pension loss of $7 million, loss on disposition of $4 million, and transaction, separation, and integration costs of $11 million. Excluding these items, Adjusted EBIT margin was 8.7% in the third quarter, an improvement of 170 bps as compared to the prior year quarter. Third quarter adjusted EBIT margin came in within our guidance range. In the third quarter of fiscal year 2021, net income and EBIT benefited from the sale of a business.

Diluted earnings per share was $0.38 and Non-GAAP diluted earnings per share was $0.92 for the third quarter of fiscal year 2022, driven by the improvement in margins, lower interest expense, and the lower number of outstanding shares. Non-GAAP EPS met the Company's previous guidance range.

Book-to-bill for the quarter was 1.23x. Over the trailing four quarters, the company delivered a book to bill of 1.08x.

During the third quarter, the Company repurchased 6.8 million shares of common stock for a total of $213 million. Year-to-date, the company repurchased 10.6 million shares for a total of $363 million.

Financial Information by Segment

Global Business Services ("GBS")

Q3 FY22

Q3 FY21

Revenue

$

1,946

$

1,921

YoY Revenue Growth

1.3%

(18.6)%

YoY Organic Revenue Growth

7.0%

(5.9)%

Segment Profit

$

315

$

273

Segment Profit Margin

16.2%

14.2%

Book-to-Bill

1.28x

1.35x

GBS segment revenue was $1.946 billion in the third quarter of fiscal year 2022, up 1.3% compared to prior year period and up 7.0% on an organic basis. The GBS performance was driven by strong growth in the Analytics & Engineering businesses, where revenue increased 17.3% and by continued improvement in our Applications business, where revenue increased 3.6% as compared to prior year period. GBS segment profit was $315 million and segment profit margin was 16.2%, up 200 bps as compared to the third quarter of fiscal year 2021. GBS bookings for the quarter were $2.48 billion for a book-to-bill of 1.28x.

Global Infrastructure Services ("GIS")

Q3 FY22

Q3 FY21

Revenue

$ 2,143

$ 2,367

YoY Revenue Growth

(9.5)%

(11.1)%

YoY Organic Revenue Growth

(8.3)%

(13.0)%

Segment Profit

$ 102

$ 88

Segment Profit Margin

4.8%

3.7%

Book-to-Bill

1.18x

0.95x

GIS segment revenue was $2.143 billion in the third quarter of fiscal year 2022, down 9.5% compared to prior year period, and down 8.3% on an organic basis. GIS segment performance was driven by improving ITO revenues, which declined by 2.7%. GIS segment profit was $102 million with a segment profit margin of 4.8%, a 110 bps margin expansion as compared to third quarter of fiscal year 2021. GIS bookings were $2.53 billion in the quarter for a book-to-bill of 1.18x.

Enterprise Technology Stack Highlights

The components of the Enterprise Technology Stack are as follows:

Offerings Revenues

Q3 FY22

Q2 FY22

Q1 FY22

Q4 FY21

Q3 FY21

Analytics and Engineering

$

545

$

520

$

482

$

476

$

462

Applications

1,268

1,216

1,246

1,282

1,225

Business Process Services

116

118

118

133

128

Cloud and Security

471

521

549

551

543

IT Outsourcing

1,111

1,052

1,128

1,171

1,141

Modern Workplace

561

581

577

660

676

Subtotal

4,072

4,008

4,100

4,273

4,175

M&A and Divestitures

Revenues

17

19

41

112

113

Total Revenues

$

4,089

$

4,027

$

4,141

$

4,385

$

4,288

Cash Flow

Cash Flow

Q3 FY22

Q3 FY21

Cash Flow from (used in) Operations

$

696

$

(187)

Less Capital Expenditures:

Purchase of property and equipment

(52)

(59)

Transition and transformation contract costs

(45)

(53)

Software purchased or developed

(49)

(107)

Free Cash Flow

$

550

$

(406)

Cash flow from (used in) operations was $696 million in the third quarter of fiscal year 2022, as compared to $(187) million in the third quarter of fiscal year 2021, and capital expenditures were $146 million in the third quarter of fiscal year 2022. Free cash flow (cash flow from operations, less capital expenditures) was $550 million in the third quarter of fiscal year 2022, as compared to $(406) million in the third quarter of fiscal year 2021. Third quarter of fiscal year 2022 operating cash flow included two previously disclosed payments totaling approximately $130 million. The third quarter benefited from stronger cash flow performance resulting from favorable timing on both payments and receipts in the quarter. Fourth quarter cash flows are expected to be negatively impacted as this timing impact reverses.

Guidance

The Company's guidance for the fourth quarter and full fiscal year 2022 is as follows:

Q4 FY22

FY22

FY22

Fiscal Year Guidance

Guidance

Previous Guidance

Updated Guidance

Revenues

$4.11 to $4.15B

$16.4 to $16.6B

~$16.4B

Organic Revenue Growth YoY

(1.2%) – (1.7%)

(1%) – (2%)

(2.2%) – (2.3%)

Adjusted EBIT Margin

8.7% – 9.0%

8.5% – 8.9%

8.5% – 8.6%

Net Interest Cost

~$25 million

~$155 million

~$135 million

Non-GAAP Diluted EPS

$0.98 – $1.03

$3.52 – $3.72

$3.64 – $3.69

Restructuring and TSI

~$550 million

~$400 million

Free Cash Flow

$500 million

>$650 million

Non-GAAP Tax Rate

~26%

~26%

~25%

The Company reaffirmed its longer-term guidance:

  • Positive organic revenue growth of 1% to 3% for fiscal year 2024

  • Adjusted EBIT margin of 10% to 11% in fiscal year 2024

  • Non-GAAP diluted EPS of $5.00 to $5.25 in fiscal year 2024

  • Free cash flow of approximately $1.5 billion in fiscal year 2024

  • Restructuring and TSI of approximately $100 million in fiscal year 2024

DXC does not provide a reconciliation of Non-GAAP measures that it discusses as part of its guidance because certain significant information required for such reconciliation is not available without unreasonable efforts or at all, including, most notably, the impact of significant non-recurring items. Without this information, DXC does not believe that a reconciliation would be meaningful.

Ken Sharp, Chief Financial Officer, commented: "Our focus driving the business in a disciplined fashion is yielding results. We have made solid progress addressing our debt and related interest expense, restructuring expense, transaction, separation and integration expense, capital expenditures, capital lease originations and our facility footprint. These initiatives, and the ongoing strong business execution of our DXC colleagues, allowed us to deliver robust cash flows in the quarter. With our improved cash flow, coupled with the progress we are making on our portfolio shaping efforts, we expect to have $1 billion in excess cash that we intend to use to repurchase our shares over the next twelve months."

Earnings Conference Call and Webcast

DXC Technology senior management will host a conference call and webcast to discuss these results on February 2, 2022, at 5:00 p.m. EDT. The dial-in number for domestic callers is +1 (888) 330-2455. Callers who reside outside of the United States should dial +1 (240) 789-2717. The passcode for all participants is 4164760. The webcast audio and any presentation slides will be available on DXC Technology’s Investor Relations website.

A replay of the conference call will be available from approximately two hours after the conclusion of the call until February 9, 2022. Phone number for the replay is +1 (800) 770-2030 or +1 (647) 362-9199. The replay passcode is 4164760.

About DXC Technology

DXC Technology (NYSE: DXC) helps global companies run their mission critical systems and operations while modernizing IT, optimizing data architectures, and ensuring security and scalability across public, private and hybrid clouds. The world’s largest companies and public sector organizations trust DXC to deploy services across the Enterprise Technology Stack to drive new levels of performance, competitiveness, and customer experience. Learn more about how we deliver excellence for our customers and colleagues at DXC.com.

Forward-Looking Statements

All statements in this press release that do not directly and exclusively relate to historical facts constitute "forward-looking statements." Forward-looking statements often include words such as "anticipates," "believes," "estimates," "expects," "forecast," "goal," "intends," "objective," "plans," "projects," "strategy," "target," and "will" and words and terms of similar substance in discussions of future operating or financial performance. Forward-looking statements include, among other things, statements with respect to our future financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, divestitures, competitive position, growth opportunities, share repurchases, dividend payments, plans and objectives of management and other matters. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control. Furthermore, many of these risks and uncertainties are currently amplified by and may continue to be amplified by or may, in the future, be amplified by, the ongoing coronavirus disease 2019 ("COVID-19") pandemic and the impact of varying private and governmental responses that affect our customers, employees, vendors and the economies and communities where they operate. For a written description of these factors, see the section titled "Risk Factors" in DXC’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021, and any updating information in subsequent SEC filings, including DXC’s upcoming Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2021.

No assurance can be given that any goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events except as required by law.

About Non-GAAP Measures

In an effort to provide investors with supplemental financial information, in addition to the preliminary and unaudited financial information presented on a GAAP basis, we have also disclosed in this press release preliminary Non-GAAP information including: earnings before interest and taxes ("EBIT"), EBIT margin, Adjusted EBIT, Adjusted EBIT margin, Non-GAAP diluted EPS, organic revenues, organic revenue growth, and free cash flow.

We believe EBIT, EBIT margin, Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS provide investors with useful supplemental information about our operating performance after excluding certain categories of expenses. Free cash flow represents cash flow from operations, less capital expenditures.

One category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, incremental amortization of intangible assets acquired through business combinations, may result in a significant difference in period over period amortization expense on a GAAP basis. We exclude amortization of certain acquired intangible assets as these non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Although DXC management excludes amortization of acquired intangible assets primarily customer-related intangible assets, from its Non-GAAP expenses, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and support revenue generation. Any future transactions may result in a change to the acquired intangible asset balances and associated amortization expense.

Another category of expenses excluded from Adjusted EBIT, Adjusted EBIT margin, and Non-GAAP diluted EPS, impairment losses, may result in a significant difference in period over period expense on a GAAP basis. We exclude impairment losses as these non-cash amounts, reflect generally an acceleration of what would be multiple periods of expense and do not expect to occur frequently. Further assets such as goodwill may be significantly impacted by market conditions outside of management’s control.

We believe organic revenue growth provides investors with useful supplemental information about our revenues after excluding the effect of currency exchange rate fluctuations for currencies other than U.S. dollars and the effects of acquisitions and divestitures in the periods presented. See below for a description of the methodology we use to present organic revenues.

Selected references are made to revenue growth on an "organic basis" so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions and divestitures from "organic basis" financial results, thereby providing comparisons of operating performance from period to period of the business that we have owned during all periods presented. Organic revenue growth is calculated by dividing the year-over-year change in GAAP revenues attributed to organic growth by the GAAP revenues reported in the prior comparable period. This approach is used for all results where the functional currency is not the U.S. dollar.

There are limitations to the use of the Non-GAAP financial measures presented in this report. One of the limitations is that they do not reflect complete financial results. We compensate for this limitation by providing a reconciliation between our Non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Additionally, other companies, including companies in our industry, may calculate Non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes between companies.

Condensed Consolidated Statements of Operations
(preliminary and unaudited)

Three Months Ended

Nine Months Ended

(in millions, except per-share amounts)

December 31,
2021

December 31,
2020

December 31,
2021

December 31,
2020

Revenues

$

4,089

$

4,288

$

12,257

$

13,344

Costs of services

3,179

3,333

9,522

10,525

Selling, general and administrative

340

517

1,093

1,595

Depreciation and amortization

424

475

1,294

1,492

Restructuring costs

36

104

248

441

Interest expense

38

82

161

284

Interest income

(15

)

(28

)

(51

)

(76

)

Debt extinguishment costs

2

311

Gain on disposition of businesses

4

(2,046

)

(373

)

(2,046

)

Other income, net

(85

)

(127

)

(290

)

(318

)

Total costs and expenses

3,923

2,310

11,915

11,897

Income before income taxes

166

1,978

342

1,447

Income tax expense

64

875

145

789

Net income

102

1,103

197

658

Less: net income attributable to non-controlling interest, net of tax

4

5

9

9

Net income attributable to DXC common stockholders

$

98

$

1,098

$

188

$

649

Income per common share:

Basic

$

0.39

$

4.32

$

0.74

$

2.55

Diluted

$

0.38

$

4.29

$

0.73

$

2.54

Weighted average common shares outstanding for:

Basic EPS

250.27

254.32

252.44

254.03

Diluted EPS

254.82

255.75

...

257.59

255.20

Selected Consolidated Balance Sheet Data
(preliminary and unaudited)

As of

(in millions)

December 31, 2021

March 31, 2021

Assets

Cash and cash equivalents